updated 05:20 pm EDT, Thu April 26, 2012

Net income down, but net sales up

Amazon on Thursday recorded a significant hit to its profit for the first quarter of 2012. Its net income dropped 35 percent from year-to-year, to $130 million. Net sales were still up 34 percent to almost $13.2 billion, setting a new high.

The company blamed a small amount of the profit drop on high foreign exchange rates that hurt both its net sales and operating income, which combined cost Amazon about $60 million.

How much the Kindle Fire impacted the company's performance wasn't apparent. Last fall, it saw profit cut in half in what's believed to have been a voluntary profit hit to build share for the Android tablet. The Kindle Fire may be sold at a loss and would have to make up for the deficit based on content sales.

As in the past, Amazon has declined to say how many Kindle devices it has sold. The firm would only say that the Kindle Fire was still the bestselling product on Amazon. Previously, Amazon had argued that it was a competitive secret, although it's often speculated that the company wants to avoid any disappointment if it ever sees poor sales.

The company did make the further claim that its Kindle app, not iBooks, was the top free book app on the iPad.

Losing Money

Technically, if they're losing money on every Fire sold, then the more they sell the lower their profits will be.

Which, assuming they really will make it up eventually in content sales, is actually a good thing for Amazon.

That said, the fact that they continue to refuse to report any numbers at all makes me highly skeptical of any claims about how well the devices are selling. Apparently half of all Android tablets are Fires now, but that's not necessarily half of a particularly large number.

Also, it's got to at least unnerve companies like Amazon that Apple currently has huge profit margins on the iPad. If, for whatever reason, they decided that volume was really, really important, they have a LOT of leeway in pricing. Apple has been notoriously unwilling to mess with gross margins, and I doubt they will, but there's no rule that says they wouldn't if they really were worried about competition and/or started making more money off the App Store. (Heck, they could afford to literally give away 150 million iPads and it would eat up less than half of the cash they have in the bank.)

Of course, they still can't manufacture as many iPads as they can sell--they said explicitly that the new one is still supply constrained--so it's not like they have any need to.

Surely they would see the benefits by now.

More Fire's sold leads to lower profits.....that is not good business sense. They are willing to take an initial hit so they could claw back the money through consumers purchasing using the Fire. If they are still seeing losses then either the Fire's uptake has gained in momemtum or (and this is more likely the case) people are buying a cheap tablet (missing some important features) and either using them for things other than Amaozon purchasing or putting them on the shelves and allowing them to collect dust.

Scale

Of course, to keep things in perspective, it's worth noting that Apple grossed about half as much on the iPad last quarter as Amazon did on everything it sells, period, including every flavor of Kindle. It also made almost as much in profit as Amazon grossed.

That's an Apples-to-books comparison, of course, but still, Apple's market is staggeringly larger.